Creditors Gave Billions To Dubai, With Just Barren Land As Collateral

If Dubai World's Nakheel property arm ends up defaulting on its debt, creditors may not much to take possession of.

Turns out that creditors for one $3.5 billion bond may only have a giant piece of barren land, the size of Manhattan, as collateral to their giant loan.

Bloomberg: Investors will be able to seek foreclosure on the property's mortgages should the Dubai World unit fail to repay the loan, according to the bond's prospectus. The debt is due on Dec. 14, after which Nakheel has two weeks to remedy a default. The property forms part of the Dubai Waterfront project, where Nakheel plans to build a city twice the size of Hong Kong.

Apparently it's a very valuable piece of land... assuming you have the money to build two Hong Kongs on top of it.

"The project isn't likely to happen," said Saud Masud, a Dubai-based real estate analyst at UBS AG. "I'd be very surprised if anything is built in the next five years."

The land was valued at $4.2 billion by Jones Lang LaSalle Inc. three years ago, based on the entire project being ready by 2018, when it would be worth $11.8 billion, the prospectus said.